AGT Golf Academy is evaluating different golf practice equipment. The \"Dimple-M

Question

AGT Golf Academy is evaluating different golf practice equipment. The "Dimple-Max" equipment costs $108,000, has a 5-year life, and costs $10,000 per year to operate. The relevant discount rate is 12 percent. Assume that the straight-line depreciation method is used and that the equipment is fully depreciated to zero. Furthermore, assume the equipment has a salvage value of $25,000 at the end of the project’s life. The relevant tax rate is 35 percent. All cash flows occur at the end of the year. What is the equivalent annual cost (EAC) of this equipment? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your final answer to 2 decimal places (e.g., 32.16).) EAC $

Explanation / Answer

AGT Golf Academy All Amounts in $ Post Tax Costs per year = 65% of $ 10,000 = $ 6,500 Based on the information given, and using the Present Value factor of the cash flows, the EAC for the equipment works out to $ 29,532.52 This is assuming the machinery cost (net of salvage value) as $ 83,000.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.